PFIN 3rd Edition by Lawrence Gitman,Michael Joehnk,Randall Billingsley

Exercise 4

Greg Fredericks wishes to have $800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today.
a. If upon retirement in 20 years, Greg plans to invest $800,000 in a fund that earns 4 percent, what is the maximum annual withdrawal he can make over the following 15 years?
b. How much would Greg need to have on deposit at retirement in order to withdraw $35,000 annually over the 15 years if the retirement fund earns 4 percent?
c. To achieve his annual withdrawal goal of $35,000 calculated in part b, how much more than the amount calculated in part a must Greg deposit today in an investment earning 4 percent annual interest?